Moody's drops Atlantic City credit rating, fears default

ATLANTIC CITY, N.J. (AP) -- Wall Street is looking at Atlantic City's financial future, and doesn't like what it sees.

The recently closed Showboat and Revel Casinos in Atlantic City. (Jessica Kourkounis, Getty Images)

Moody's Investors Service on Friday lowered Atlantic City's bond rating by six steps, from Ba1 to Caa1, which is deep into junk territory.

The move came a day after Gov. Chris Christie appointed corporate turnaround specialist Kevin Lavin as the city's emergency manager, and Kevyn Orr, who helped Detroit through its bankruptcy filing, as his assistant. Christie's executive order appointing the pair indicates a bankruptcy filing is possible to help reduce the city's debt, which Moody's calculated at $397 million.

The agency cited an increased risk of default, and a new mindset among state officials.

"The downgrade to Caa1 reflects the appointment of an emergency management team of two bankruptcy specialists mandated to consider debt restructuring, which could involve a loss to bondholders," analyst Josellyn Gonzalez Yousef wrote in a report to clients Friday. "The increased risk of default further arises from the city's looming $12.8 million note maturity on February 3. This is a rapid, dramatic change from the State of New Jersey's prior policy of preventing default or bankruptcy of Atlantic City or any New Jersey local government."

The Caa1 rating indicates a high risk of default over the next five years.

Mayor Don Guardian said he has been working to tame the city's finances in his first year in office.

"I've only been in office a short time," he said. "I continue to do what is necessary to make Atlantic City economically vibrant, and that goal hasn't changed. Our better days are still to come."

The city is cutting $40 million from its $260 million budget over the next three years, and eliminating 250 to 300 jobs this year.

Four of Atlantic City's 12 casinos closed last year, and three others are currently in bankruptcy.

Filed Under: Atlantic City